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Topics for today’s investors
Spring 2015
Outlook
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01
Deeper dive
The good, the pretty
good and the not so
good
The Murphy Wealth Management Group
David P. Murphy
Senior Vice President–Wealth Management
Portfolio Manager, PMP
Wealth Advisor
1251 Ave. of the Americas, 2nd Floor
New York, NY 10020
212-626-8895
800-458-1764
855-270-9454 Fax
david.p.murphy@ubs.com
ubs.com/fa/davidpmurphy
03
Editorial
Consensus not
complacence
04
The bottom line
Preferred investment
views
The good, the pretty good and
the not so good
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of winter. For those of us in the equity market trenches, April also means that
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expect to hear from companies around the globe in the coming weeks and
how those expectations shape our regional equity preferences.
The good: Europe
We have been increasingly warming up to Eurozone equities over the last
several months, driven by the region’s brightening economic outlook. The
European Central Bank has taken more aggressive steps to stimulate growth,
government austerity is no longer a drag, the plunge in oil prices has been
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Furthermore, the euro’s sharp depreciation is a boon for European exports and
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likely outpace all other major geographies, and this is a key reason why it is our
most preferred region.
The pretty good: the U.S.
While the earnings outlook for Europe is fairly upbeat, assessing the U.S.
requires a more nuanced approach. Consistent with the last couple of years, we
believe underlying earnings growth is healthy and running at a high single-digit
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The not so good: emerging markets
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appreciation and slumping commodity and oil prices will
likely weigh heavily on near-term earnings results. As Asia
is a net commodity importer, emerging Asian earnings
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below consensus expectations. Our bottom line remains
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to support share performance. As a result, we remain
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when they are translated back into dollars. While many
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we believe it will reduce growth by only three percentage
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results will be a bit better than this due to the positive
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the plunge in oil prices and the stronger dollar is unlikely
to continue next year, and the solid underlying corporate
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Conclusion
The earnings season deluge is almost upon us. While
there are always pockets of strength and weakness, we
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of European and U.S. equities, while the challenges facing
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The bottom line
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expectations that Eurozone earnings will outpace those
of all other major geographies this year. The U.S. earnings
trend remains favorable, but headline earnings growth
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dollar. These headwinds will likely abate by the end of the
year. Emerging market growth will likely be uneven but
generally weak.
Consensus not complacence
Mike Ryan, CFA
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There may well be times when adopting a consensus
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especially if that view lacks conviction, has no clear
catalyst for performance or if the asset class in question
has excessively high valuations. But there is little
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evidence to suggest that contrarian investment bets by
consensus views are lauded as somehow
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being
both braver and more intellectually honest than
are
is a body of work concluding that contrarian strategies
consensus views. Terms
like “conventional
wisdom”
typically underperform simple momentum-driven market
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plays. One study even found that contrarian calls have
level of disdain for broadly held beliefs. Perhaps this is a
underperformed more traditional investment plays the
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bucked
convention
vast majority of the time over the past two decades.
romanticized those mavericks
that
and broke from the status
quo.
From
the
frontiersmen
of
the Old West to the tech
Valley,
entrepreneurs
of Silicon
So rather than simply tilting against the wind, we
instead elect to invest in those asset classes, regions,
this independent spirit and willingness to defy collective
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sectors and industries where we have a high level of
conviction. This includes one increasingly consensus call:
Eurozone equities.
But is this really how
investors
should
think
and
act?
Simply
with
the
Now don’t get me wrong
here.
standing
pack in the absence of conviction is rarely a recipe for
success. A passive and unquestioning acceptance of the
status quo is not only unwise, it may also be unjust and
immoral. But to adopt
solely
because
a contrarian
view
it stands in sharp contrast to the widely held beliefs of
others doesn’t strike me as an especially prudent approach
either. There are those who would counsel us to avoid a
certain course of action for no other reason than others
may have already chosen that path.
This applies to markets as well.
While the European recovery is still at an early and
relatively fragile stage, the combination of a weaker euro,
lower energy prices, easing credit conditions, abatement
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policy approach and ratcheting down of systemic risks
represents a powerful tailwind for growth. This, in turn,
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for Eurozone-based companies are likely to grow at a
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Although there has been increased interest in Eurozone
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into both exchange-traded and mutual funds, European
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period of underperformance, European markets have only
just begun to play “catch up” to U.S. markets in what is
likely to be a multiyear re-rating process.
Keep in mind that both emerging market stocks in
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years have had extended periods of outperformance as
momentum strategies soundly trumped contrarian plays.
We see a similar dynamic playing out in the Eurozone, as
investors gradually embrace this combination of stronger
growth, easy policy and underpriced assets.
So while owning Eurozone equities may increasingly
be a consensus view, it is hardly an uninformed or
complacent one.
3
Preferred investment views
For more information, please see UBS House View"QSJM
Most preferred
Least preferred
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investing
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Asset classes
Alternative investments
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